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Momentum Profits Using Spread Midpoint Returns and Trading Volume on the Nigeria Stock Exchange

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  • Tov Assogbavi
  • John Dodge

Abstract

This paper analyses the relationship between short and medium-horizon returns and trading volume to find out whether trading information is important in predicting the price movements of securities on the Nigeria Stock Exchange. Using a variant of Lehmann's (1990) contrarian trading strategy, wejind strong evidence o/"a relationship between trading activity and subsequent autocovariances in monthly returns. Contrary to Conrad, Hameed, and Niden (1994) who find that high-transactions securities experience price reversals on NASDAQ, our data show a price continuation on the Nigeria Stock Exchange. The main conclusion of this paper is that a momentum portfolio strategy that invests in medium-horizon Winners and sells past Losers gains approximately 2 percent per month. This result is consistent with Rouwenhorst (1998) who found that, on the average, an internationally diversified relative strength portfolio earns approximately 1 percent. Overall, information on trading activity appears to be an important predictor of the returns of individual securities on the Nigeria Stock Exchange.

Suggested Citation

  • Tov Assogbavi & John Dodge, 2002. "Momentum Profits Using Spread Midpoint Returns and Trading Volume on the Nigeria Stock Exchange," Journal of African Development, African Finance and Economic Association (AFEA), vol. 5(1), pages 16-35.
    • Handle: RePEc:afe:journl:v:5:y:2002:i:1:p:16-35
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